Mighty River International Ltd v Hughes [2024] FCA 1177 | Case summary

FEUTRILL J: 1 This is an originating process for orders under s 439A(6) of the Corporations Act 2001 (Cth) to extend the convening period for the second meeting of creditors of Ashby Mining Limited, AMDR Operations Pty Ltd, Blackjack Milling Pty Ltd and Fortified Gold Pty Ltd, which I will refer to as the group companies. Orders are also sought under s 447A of the Act to modify the manner in which s 439A would otherwise operate to permit the second meeting to be convened at any time up to the end of the extended convening period. 2 On 23 August 2024 Collins Street Convertible Notes Pty Ltd, as trustee for the Collins Street Convertible Notes Fund, appointed Richard Tucker and Tony Miskiewicz, of KordaMentha jointly and severally as receivers and managers over all of the assets of the group companies. On 24 August 2024 Collins Street Convertible Notes appointed Cameron Shaw and Richard Albarran of Hall Chadwick as joint and several administrators of each of the group companies under s 436C of the Act. The administrators are the first plaintiff and the group companies are the second to fifth plaintiffs in the proceeding. 3 Collins Street Convertible Notes is the primary secured creditor of the group companies. The secured debt is in the order of A$18 million. Collins Street Convertible Notes claims arise from a convertible notes agreement it holds and an all assets security over the whole or substantially the whole, of the undertaking of the group companies. 4 As a consequence of their appointment, the administrators must perform certain duties and functions under Pt 5.3A of the Act. Those duties and functions include convening a first meeting of creditors under s 436E, and second meeting of creditors under s 439A of the Act. The administrators have convened and held the first creditors' meeting of the group companies. The administrators must convene the second meeting of creditors within 20 business days after their appointment, unless the convening period is extended by order of the Court. The meetings must be held within five business days before or after the end of the convening period. Here, the convening period ends on 19 September 2024. The meeting has not been held, and therefore, must be held on or before 26 September 2024. 5 By a letter dated 16 September 2024 from the receivers to the administrators, the receivers outlined the steps they had taken since their appointment and a proposed sale process for the group companies and (or) their assets. Amongst other things, they indicate in their letter that they have commenced the sale process, and as of 16 September 2024, an information memorandum had been finalised and distributed to the parties who have signed confidentiality agreements, and a data room has been opened to interested parties who have signed confidentiality agreements. Advertisements have been placed in the Australian Financial Review and the Courier Mail and a flyer has been distributed via an online platform. They have also given an indicative timetable for the sale process. It involves the receipt of indicative offers by 26 September 2024; notification of shortlisted parties thereafter; site visits and management of presentations by 7 October 2024; receipt of final offers by 16 October 2024; notification of preferred bidders in late October 2024; and a draft agreement to be finalised and executed by mid-November 2024. 6 Amongst other things, the receivers also opine that they expect that the sale agreement will likely involve a deed of company arrangement and requested the administrators to apply for an extension of the time to convene the second creditors' meetings so as to, in their view, maximise the value for creditors and permit a process of sale to be undertaken against a background in which a deed of company arrangement may be made. On 16 September 2024 the administrators lodged the originating process, and it was accepted for filing the following day. 7 Earlier, by circular to the creditors dated 13 September 2024, the administrators had given notice of their intention to apply for an extension of four months for the period of time to convene the second creditors' meetings and explained their reasons for that intention in the circular. The same reasons have largely been provided in an affidavit of Cameron Shaw sworn 16 September 2024 and filed in support of the application to which I will make reference later in these reasons. I am, however, satisfied that the circular provided creditors with a fair and reasonable explanation of the reasons why the administrators are seeking or intended to seek an extension of time. 8 As at the time of the hearing of this application, although notice has been quite limited, no unsecured creditor has raised an objection to the orders sought. The administrators have filed a further affidavit of Emily Monei Thomason affirmed 18 September 2024 that deals with some correspondence between the administrators and (or) their solicitors and creditors and (or) their solicitors that preceded the hearing. That correspondence indicates that certain inquiries were made of the administrators and answers given to those inquiries and, as of the time of the hearing of this application, neither of the relevant creditors or those who represent them have sought to be heard on the application or raised any objections to an extension of time with the administrators. Additionally, the extension of time is obviously supported by the receivers and, through them, the secured creditor who appointed them. 9 In any event, the relatively short notice can be accommodated by the form of orders I propose making which will preserve the ability of a party who can show sufficient interest in being heard to apply to the Court to vary or discharge the order. In that way, although this is essentially an ex parte application, if for some reason a matter should be brought to the Court's attention that would have changed the outcome of the application that matter can be brought to the Court's attention later and the orders may be revisited. 10 The principles applicable on an application of this nature are well-established and have been summarised in a number of decisions of this Court and other courts. As already mentioned, the convening period for the second creditors' meetings of the group companies is 20 business days beginning on the day after the administration began: s 439A(5)(b). That period ends tomorrow and the meetings must be held within five business days before or five business days after that date: s 439A(2). 11 Section 439A(6) provides that the Court may extend the convening period on application. Section 447A provides that the Court may make such order as it thinks appropriate about how Pt 5.3A is to operate in relation to a particular company. Therefore, the administrators have sought an order under s 439A(6) extending the period of time for convening the second creditors' meetings and they have sought an order under s 447A modifying the operation of s 439A(2) such that a meeting may be convened at any time within five days after the extended convening period. The effect of such an order, in the context of an extension of the convening period, is to give the administrators greater flexibility to allow the second creditors' meeting to be convened earlier if appropriate in the circumstances. An order of this nature is frequently referred to as a Daisytek order after the decision of Lindgren J in Re Daisytek Australia Pty Ltd [2003] FCA 575; 45 ACSR 446. 12 As I have mentioned, the principles are well established. I will summarise them. (1) When considering an application to extend the convening period, the Court must have regard to the objects of Pt 5.3A set out in s 435A and reach an appropriate balance between the expectation that the administration will be undertaken in a relatively speedy and summary manner with the need to ensure that the administration is not concluded without consideration of sensible and constructive options that is directed towards maximising the returns for creditors and any return for shareholders. (2) The administrators' view on such an application is significant and, particularly where the administration is complex, it should carry weight. (3) In considering an application for an extension of time the Court must take into account the detriment to third parties, including the suspension of rights and remedies of secured creditors, lessors and others. (4) The Court has recognised that the interests of creditors can be prejudiced not only by delay, but by the convening of premature meetings where the administrators have been unable to obtain adequate information for the preparation of the administrators' report in a form enabling creditors to make an informed decision. (5) The following relevant categories of cases have been identified as circumstances where extensions have been granted: (a) where the extension of time will allow the sale of the business as a going concern; (b) where the size and scope of the business in an administration is substantial; and (c) more generally, where additional time is likely to enhance the return for unsecured creditors. (6) Further, an extension of the administration period to facilitate either or both of: (a) the sale of the business of the company as a going concern so as to maximise the value of the company's assets; or (b) the progression and assessment of a deed of company arrangement proposal that may provide a better return to creditors than a winding up are well recognised examples of situations where the Court has extended the convening period. 13 These principles, to which I have made reference, are summarised in Re Virgin Australia Holdings Ltd (Administrators Appointed) (No 2) [2020] FCA 717; 144 ACSR 347 at [64]-[68] (Middleton J) and Algeri (Administrator), in the matter of Murray & Roberts Pty Ltd (Administrators Appointed) (No 2) [2022] FCA 1563 at [8]-[12] (Banks-Smith J). Additionally, in Mighty River International Ltd v Hughes [2018] HCA 38; 265 CLR 480 (at [73]) Nettle and Gordon JJ (in dissent, but not relevantly in this respect) referred to a number of cases to which reference is made in the paragraphs of the other two authorities to which I have referred and said: Generally speaking, courts have been disposed to grant substantial extensions in cases where the administration has been complicated by, for example, the size and scope of the business, substantial offshore activities, large numbers of employees with complex entitlements, complex corporate structures and intercompany loans, and complex recovery proceedings, and, more generally, where the additional time is likely to enhance the return to unsecured creditors. Provided the evidentiary case for extension has been properly prepared, there has been no evidence of material prejudice to those affected by the moratorium imposed by the administration, and the administrator's estimate of time has had a reasonable basis, the courts have tended to grant extensions for periods sought by administrators. 14 Now, with those principles in mind, I turn to consider the relevant factual background. 15 Ashby Mining is an aspiring gold and copper producer which holds ownership and (or) mining rights in respect of several known deposits and mining related assets in Charters Towers district of Queensland. Those assets, which are held by Ashby Mining subsidiaries, include rights to mine the Hadleigh Castle mine, which forms part of the Burdekin project. It is owned by Denjim Pty Ltd. Ashby Mining has 50 percent of the issued share capital in Denjim. The assets also include the Blackjack Mill, a gold processing plant; 94.4 percent of the issued share capital in Fortified Gold, which holds a number of mining tenements; eight exploration tenements in surrounding areas to the Hadleigh Castle and Far Fanning mines; 19 mining leases; and a mineral development licence. 16 As a consequence of the appointment of the receivers, they are in control of the group companies and are managing their day-to-day operations. However, due to the companies' financial circumstances, they have not been for some time actively exploring, developing or mining any of the previously mentioned projects. The receivers' operations have been limited to engaging caretakers to maintain the Blackjack Mill, ensuring the property insurance is in place, engaging tenement managers to assist in managing the mining tenements of the group companies, and dealing with solicitors in relation to ongoing litigation involving the group companies. As already mentioned, the receivers have also commenced the sale process that I have outlined and liaised with the administrators to, amongst other things, request them to make this application. 17 The administrators have provided evidence that, based on discussions with the receivers, they believe there to be interested parties who have expressed a genuine interest in the re-capitalisation and (or) the sale process being undertaken by the receivers and that process may result in one or more interested persons putting forward proposals for the companies to execute one or more deeds of company arrangement. To state the obvious, if an extension of time is not granted, then the opportunity for a deed of company arrangement to be entered into will be lost. 18 As Banks-Smith J observed in Murray & Roberts (No 2) at [15]: In assessing whether an extension of time should be granted, it is relevant to have some regard to the nature and intensity of the work that has been necessary for the [a]dministrators to undertake since their appointment and during the limited period prescribed by the legislation. 19 Mr Shaw, in his affidavit, has deposed to the work that the administrators have performed since their appointment, which includes notification of financial institutions of their appointment and establishment of control of banking facilities; establishing a bank account for the administrators; attending to the relevant applicable statutory duties under the Act; as mentioned, holding the first creditors' meeting; liaising with external advisers of the group companies to understand their operating structure and financial position; liaising with the receivers; issuing requests to the directors of the companies to complete a report of company activities and property (referred to or known as a ROCAP) in respect of the each of the group companies and to deliver the books and records of the group companies to the administrators; securing certain books and records; commencing an initial review of the books and records; undertaking preliminary investigations to ascertain the financial position of the group companies, the reasons for their failure and any transactions that may be recoverable by a liquidator; and liaising with various key stakeholders. They have also commenced the preparation of what is referred to as the major report, which is the report to creditors under r 75-225 of the Insolvency Practice Rules (Corporations) 2016 (Cth) and, self-evidently, being involved in the preparation of this application. 20 Amongst other things, Mr Shaw deposes that they have not yet been provided with full access to the books and records of the group companies, including that, although an extension has been granted to the directors to provide the ROCAP, they have not yet provided that information. Mr Shaw deposes that the books and records have been provided in a piecemeal fashion from various different parties and advisers. He goes on to observe elsewhere in his affidavit that that has made the task of ascertaining the financial position of the group companies more difficult. 21 As mentioned, one of the statutory functions of the administrators is to prepare the major report that is to accompany the notice convening the second creditors' meetings. Amongst other things, it is to include information about the company's business, property affairs and financial circumstances and, importantly, a statement setting out whether, in the administrators' opinion, it would be in the creditors' interests for the company to execute a deed of company arrangement or for the administration to end or for the company to be wound up. Evidently, a purpose of the major report is to inform the creditors' decision at the second creditors' meetings on each of the three things that the creditors may decide under s 439C of the Act. And, as I have alluded to, Mr Shaw deposes facts that indicate that the administrators' ability to prepare a meaningful major report has been hampered and one of the reasons for requesting an extension of the time to convene the second creditors' meeting is to allow the administrators further time to adequately investigate the business and affairs of the group companies, which Mr Shaw opines are complex, and also to allow them to make an informed recommendation to creditors of the group companies as to what options for the future of those companies is in their best interests. 22 Mr Shaw also deposes that the administrators do not consider themselves to be in a position to properly prepare a major report at this time for a number of reasons. One of the reasons, which I have already mentioned, is the absence of a ROCAP. The other reasons include that the group companies' structure is complex, there are a substantial number of creditors, the number and complexity of the financial instruments the companies have issued, the incomplete nature of the books and records of the companies at this time, that claims of creditors arise under complicated financial arrangements, that the operations of two of the companies involved several legal disputes which require investigation, and that the receivers have day-to-day control of the group companies. Further, Ashby Mining is, or was, a party to a number of other arrangements, including previous deeds of company arrangement, in which it acquired Blackjack Milling and there are other assets owned overseas that require investigation on the part of the administrators. 23 As already mentioned, the receivers are in control of all the assets of the group companies and have initiated a sale process that is anticipated to be completed by mid-November 2024. The companies are in a state of care and maintenance and the receivers have engaged various contractors, as required from time to time, to maintain the assets of the group companies and the costs of so doing, at this stage, are being borne by the receivers. In addition, the receivers have engaged caretakers to look after the Blackjack Mill, ensured that appropriate insurance cover has been in place, engaged tenement managers to assist the receivers in managing the groups; mining tenements; and corresponded with the solicitors relating to the litigation involving the group companies and Denjim. 24 The administrators, through Mr Shaw, have also given evidence of their view about what is in the best interests of the companies' creditors. Mr Shaw opines that in an administration there are several options available to the group companies, their creditors and other stakeholders to restructure the group companies and their business operations, including: (a) a going concern sale, either at an asset level or a shareholding level; (b) a refinancing of the current financial arrangements; (c) an injection of funds from current shareholders or third parties; and (d) the sale of assets to the companies on an individual or collective basis. Mr Shaw is presently of the view that the best outcome for all stakeholders will be served through a deed of company arrangement, whether by sale or otherwise. He opines that maximising sale proceeds will provide the best opportunity for secured creditors to be repaid and for there to be a surplus available to unsecured creditors and, possibly, shareholders. That view appears to coincide with the view expressed by the receivers in their letter requesting that the administrators make this application. This leads to the second significant reason the administrators commenced these proceedings, which is to extend the time so as to facilitate the sale process that is intended to be run by the receivers, but with a prospect that it will result in a fund surplus that will be available for distribution amongst the unsecured creditors of the group companies. 25 Mr Shaw gives a number of reasons, including those I have already mentioned relating to the preparation of a meaningful major report but also that, obviously, if the extension is granted, it will allow the receivers to conduct the sale process against the backdrop of the possibility of a deed of company arrangement being made and an expectation that a successful sale will involve a deed of company arrangement. If the extension is not granted, then the only realistic recommendation to creditors will be to resolve to liquidate the companies. Therefore, facilitating a sale process will also place the administrators in a better position to advise creditors on the options available to them and to provide an informed recommendation for the future of the group companies. Mr Shaw opines that even if the sale process fails or needs to be truncated, such a failure or truncation will provide a clear indication about the prospects of achieving a sale and that in itself will assist to inform the creditors at the second creditors' meetings. Ultimately, he opines that, in the circumstances, it is not possible to complete the administrators' investigations, properly consider and address the various matters to which I have made reference, prepare the major report and convene the second creditors' meetings within the 20 statutory business-day period that would apply if the extension is not granted. 26 So with that explanation of the applicable principles and the relevant facts before the Court on the application, I turn now to consider the application of the principles to the facts. 27 The evidence before the Court indicates that the group companies collectively and individually have very significant debts the vast majority of which is unsecured, at least in the case of Ashby Mining and AMDR Operations. As I have mentioned, the operations of the group companies are in a state of care and maintenance, however, they do own various assets to which I have made reference including a 50 percent shareholding in Denjim. There is no evidence before the Court as to the potential value of any of those assets or the extent to which that value exceeds or is likely to exceed the secured debts. 28 Nonetheless, I place significant weight on the opinion of Mr Shaw. He is an experienced consultancy practitioner. He opines that the sale process in which the receivers are engaged will maximise value if the ability of the group companies to enter into a deed of company arrangement in the sale process is preserved. I also take into account that the administrators' investigations have been hampered and delayed because access to books and records has been limited and the ROCAP has not been provided. In these circumstances, the administrators are unlikely to be in a position to provide an administrators' report and statement that is adequately informative to creditors, in particular, to arrive at the opinions referred to in rr 75-225(3)(b)(i) to (iii) of the Insolvency Practice Rules for the purposes of a s 439C decision that are meaningful and informative for creditors. 29 I accept and take into account that in considering whether to extend the convening period, the Court must have regard to the objects of Pt 5.3A, as set out in s 435A, and reach an appropriate balance between the expectations that an administration will be undertaken in a relatively speedy and summary manner with the need to ensure that the administration is not concluded without consideration of sensible constructive options directed towards maximising returns to creditors and any return for shareholders. The object of Pt 5.3A, as expressed in 435A, is to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much as possible, of its business continuing in existence, or if that is not possible, that results in a better return for the company's creditors and members that would result from an immediate winding up of the company. 30 In the circumstances of this case, I am satisfied that extending the convening period is in the best interests of the creditors. I am also satisfied that it is appropriate to make a Daisytek order so as to allow the administrators the flexibility to convene the second creditors' meeting earlier, should that be thought to be in the interests of creditors. Overall, having regard to the indicative timetable for the sale process, four months is appropriate, as it will run into the Christmas and New Year period and cater for the possibility of some slippage in the receivers' indicative timetable. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Feutrill.

Mighty River International Ltd v Hughes

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